I’ve been responsible for helping companies expand internationally before — for products as diverse as movies (film distribution for Disney) to ad servers (Sabela Media, my first startup) — and it never ceases to amaze me how complicated it is for companies to grow beyond their roots.
First and most obvious, there are major cultural and linguistic differences between the U.S. and other markets. Globalization and the continued rise of American cultural imperialism aside, other markets have different ways of doing things. In digital advertising, this can be as superficial as how requests for proposals (RFPs) and insertion orders (IOs) are created and distributed, to the subtleties of who is an “insider” and thus more likely to win a campaign. The single most important factor in successful international expansion is finding someone to run the market that can bridge the cultural gap between the headquarters and the foreign subsidiary. This is also almost more important than familiarity with the product or technology and expertise in the field.
Often, cultural differences lead to tangible differences we see in the market. Let’s use cost per impression (CPM), cost per click (CPC) or cost per action (CPA) pricing strategies as an example. In both Europe and the U.S. there are vendors who sell media by the impression, click or conversion, but interestingly enough, there are big differences within markets.
In the U.S., most media is bought on a CPM basis, but measured on a CPA basis, with clients and agencies using a variety of attribution methods (post click, view through, fractional attribution). In Europe, especially with media that is sold to clients directly (no agency involvement), CPC rules supreme. The simplicity of the CPC model causes many more clients to sign up directly with programmatic vendors, rather than through agencies. Essentially, they are asking themselves, “What do I need an agency for if all they are doing is measuring last click?”
Conversely, in the U.S., the number and type of agencies helping with media is both deeper and broader. There are performance agencies, search agencies, trading desks and traditional agencies, etc. The vast multitude of options leads many more brands to hire agencies to help manage their buying. Therefore, if you’re a U.S. company expanding to Europe, you may find that you need to change both the way you price your product and whom you sell it to. And vice versa.
Across nearly every global media type, from TV, mobile, outdoor, direct mail to digital, the U.S. represents between 40% and 60% of the worldwide market. In digital, this tends to be closer to 60% as many new products originate in the U.S. and take time to expand internationally. However, what works in the U.K. is far different than what works in Germany or other markets. Within Asia, you’ll find that although Japan is the largest advertising market, it’s entirely different from any other Asian country and none of the learnings can be taken from one to another. The result is that there are very different economies of scale in each market.
A good rule of thumb is to take the size of the GDP (Gross Domestic Product) for the country and express that as a percentage of U.S. GDP—that will be the approximate size of the media buy per campaign. It is always worth modeling each country and using this metric to predict revenue at scale compared to your U.S. operations. You may find that you simply can’t afford to expand into some countries because the cost of operating there isn’t justified.
There is also a jungle of different laws and regulations within each market. These may include:
In addition to the above, there is a talent issue. There are simply fewer people outside the U.S. who are experts in digital advertising and programmatic media buying. Finding talent is a challenge. While you may be tempted to put U.S. citizens in charge of foreign operations, keep in mind that local people always succeed because they are already immersed in the local culture.
When expanding internationally, a few best practices to keep in mind are: keep it simple, timing is everything (know that your international investment will bring a better ROI than your investment in the U.S,) and hire a team that currently or previously has worked within that market.